Treat it rationally | Comment on the domestic bank ban on BTC transactions

Recently, a bank issued a statement prohibiting users from using the bank's accounts for trading virtual currencies such as Bitcoin and Litecoin on the grounds of protecting the property rights of the public, maintaining the legal currency status of the RMB, and preventing money laundering risks. Otherwise, it will take measures such as terminating transactions and canceling accounts. This news caused a stir in the cryptocurrency circle - whether the bank has the right to make such a statement, whether it can represent the regulatory attitude, whether virtual currency has been negatively defined by law, and what impact it will have on the cryptocurrency circle. This article aims to analyze this for the reference of readers.

Does the statement represent our country’s official attitude?

First of all, it should be made clear that commercial banks are joint stock companies with special financial licenses, including the Big Four, and the participation of state-owned assets will not change their essential attributes as commercial entities. Documents or statements issued by banks do not fall under the broad definition of law, and cannot be directly equated with my country's official attitude.

As early as 2014, some banks have issued similar statements. As of now, more than a dozen banks have denied users from using bank accounts for virtual currency trading activities.

If the recent statement can represent the official attitude, then this attitude was reflected in Article 2 of the "Notice on Preventing Bitcoin Risks" jointly issued and implemented by multiple ministries in 2013 before the banks' announcements: "Financial institutions and payment institutions are not allowed to carry out Bitcoin-related businesses."

Sajie’s team believes that, in terms of effectiveness, a certain bank’s recent statement is merely imitating the announcements of several banks that issued statements previously. In order to avoid accountability from regulatory authorities, it gave a slightly expanded interpretation of “Bitcoin-related businesses”. There is no new official attitude or tendency.

Does a bank have the right to stop providing services?

A bank’s statement clearly stated that if it is found that a user is using a bank account to trade virtual currencies such as Bitcoin and Litecoin, measures such as suspending account transactions and canceling the account will be taken.

According to the first and second paragraphs of Article 4 of the Commercial Bank Law, commercial banks shall operate on the principles of safety, liquidity and efficiency, and shall operate independently, bear their own risks, profits and losses, and exercise self-discipline. Commercial banks shall conduct their business in accordance with the law and shall not be interfered with by any unit or individual.

Sister Sa’s team believes that commercial entities have the right to choose their own partners, but they should bear the civil liability for breach of the agreement unless there are restrictions by laws and regulations.

Therefore, the key to whether banks can prohibit virtual currency transactions lies in whether the second article of the "Notice on Preventing Bitcoin Risks" (hereinafter referred to as the "Notice") stipulates that "financial institutions and payment institutions shall not conduct Bitcoin-related businesses" can cover the meaning of prohibiting users from purchasing and holding Bitcoin.

If we combine the system interpretation with the legislative purpose, Sister Sa’s team believes that since the notice identifies Bitcoin as a virtual commodity, allowing citizens to purchase and hold Bitcoin is exactly what the notice means, and banks should not prohibit their accounts from being used to purchase virtual currencies.

However, if we understand it literally, if a user purchases Bitcoin through an account opened by a financial institution, and the financial institution knows or should know about this but fails to supervise it, it is indeed suspected of providing Bitcoin-related services.

In order to avoid taking responsibility, the inertial thinking of rather killing the innocent than letting the guilty go has led financial institutions and payment institutions to choose the latter explanation. We have reservations about this.

Reasons for restricting virtual currency transactions

The statement states that there are three reasons for restricting accounts from engaging in virtual currency transactions: protecting citizens' property, maintaining the legal tender status of the RMB, and combating money laundering. However, purchasing virtual currencies, especially Bitcoin, which is classified as a virtual commodity, does not directly infringe on citizens' property or undermine the legal tender status of the RMB.

Sister Sa’s team believes that the main reason for restricting virtual currency transactions should be the need for anti-money laundering - due to the extremely strong concealment and anonymity of virtual currency, some criminals will use digital currency as a tool for money laundering.

When citizens participate in transactions between virtual currency and legal tender, since legal tender transactions on exchanges are mostly point-to-point transactions, the legal tender obtained by citizens from selling digital currency may be the stolen money originally held by the criminals, but the source cannot be traced.

Furthermore, if the citizen knows that the criminal is laundering money and concealing or hiding the proceeds of crime or the proceeds of crime, but still participates in it, it may constitute the crime of money laundering as stipulated in Article 191 of the Criminal Law, or the crime of concealing or hiding the proceeds of crime or the proceeds of crime as stipulated in Article 312 of the Criminal Law.

Views on virtual currencies

At present, there is no definitive conclusion on the nature of virtual currency. According to the different transaction values ​​and usage values ​​of each virtual currency, there are various definitions such as currency, data, property, and commodity. Depending on the different nature of virtual currency, the legal evaluation it receives in its application will vary greatly. However, combining the provisions of the notice with the judgment tendency in practice, the Sister Sa team has extracted two relatively clear legal behaviors for your understanding:

First, it is no different for citizens to hold mainstream virtual currencies than to hold virtual goods, such as Bitcoin and ETH, and it is not illegal.

Second, occasional mainstream virtual currency OTC transactions are citizens' purchases of virtual goods and are not illegal.

As for currency-to-currency trading, Defi and other financial businesses, the conclusions vary depending on the qualitative differences. In the future, the Sajie team will discuss the issues based on the latest practices and academic views.

Final Thoughts

Solving the problems brought about by virtual currency should rely on the establishment of a regulatory system, rather than ignoring an industry that does exist or even making a blanket negative evaluation.

Taking anti-money laundering as an example, natural persons buy or sell digital currencies mostly on digital currency exchanges, and both the buyer and the seller are natural persons. If the target is small, it will be very difficult for banks to verify legal currency transactions involving digital currencies. If exchanges are included in the regulatory system, the addresses are associated with the transaction subjects based on their KYC records and reported to the competent authorities in a timely manner, it will undoubtedly be more valuable to understand the facts and collect evidence compared to the current attitude.